Social Policy Bonds blog

31 March 2015

Jonathan Franzen writes about biodiversity and whether the emphasis on climate change is diverting worthwhile effort and resources away from conservation. He visits Costa Rica and looks at conservation efforts in the northern dry-forest region of Guanacaste:

The question that most foreign visitors to Guanacaste ask is how its model can be applied to other centers of biodiversity in the tropics. The answer is that it can’t be. Our economic system encourages monocultural thinking: there exists an optimal solution, a best conservation product, and once we identify it we can scale it up and sell it universally. As the contrast between Amazon Conservation and the A.C.G. [Área Conservación de Guanacaste] suggests, preserving biological diversity requires a corresponding diversity of approach. Carbon Capture:Has climate change made it harder for people to care about conservation?,
Jonathan Franzen, 'New Yorker', dated 6 April

This is something I've been advocating for years: to solve our biggest, most complex social and environmental problems we urgently need diverse, adaptive approaches. Social Policy Bonds would encourage such approaches in ways that current policy cannot. Yes, we need some high-level direction as to which objectives we should pursue, and yes, we need some broad system of revenue raising to finance the achievement of some of these goals. But we do not need top-down, one-size-fits-all, programmes based on fossilised science that have been tried, tested and (for the most part) failed. The world is too complex for that.

A Social Policy Bond regime would reward those who achieve such long-term goals as maintaining or increasing biodiversity, without stipulating how these goals shall be achieved. Government, or a group of governments or non-governmental bodies or philanthropists could work together to articulate society's goals and raise revenue for their achievement. But the actual achieving would be done by bondholders (or people paid by bondholders) who would be motivated to form a coalition of interests entirely devoted to achieving society's goals with maximum efficiency. This coalition would probably vary in composition and structure over time, as would the projects it initiates. But at any one time, the market for the bonds would ensure that only the most efficient programmes will be implemented.

22 March 2015

David Graeber began this piece by writing about Ferguson in the US, and the criminalisation, in the US, of violations of administrative codes:

Almost every institution in America—from our corporations to our
schools, hospitals, and civic authorities—now seems to operate largely
as an engine for extracting revenue, by imposing ever more complex sets
of rules that are designed to be broken. And these rules are almost
invariably enforced on a sliding scale: ever-so-gently on the rich and
powerful (think of what happens to those banks when they themselves
break the law), but with absolute Draconian harshness on the poorest
and most vulnerable. Ferguson and the Criminalization of American Life, David Graeber, 19 March

I don't think this should greatly surprise us. Government, like any other big organization, has as its one over-arching goal that of self-perpetuation. Like churches, trade unions, universities or any other institution, governments usually start out meaning well, and are staffed by hard-working and, often, individually ethical employees. But at some point the organization's stated objectives are forgotten and we end up with scenarios similar to that which Mr Graeber describes. Government bodies don't face the discipline of markets or competition and if they limit their corrupt behaviour to the less powerful, they can get away with it indefinitely.

Social Policy Bonds are a means by which any organization trying to achieve social goals will always be focused entirely on those goals. The very structure and composition of the organizations would be determined, dynamically, by their need to achieve society's goals as efficiently as possible. And it is society's goals that they would be achieving: their own goals, including that of self-perpetuation, would be subordinated to those goals set by society and targeted by Social Policy Bonds. It's a stark contrast between a bond regime that articulated society's wishes and rewards those who achieve them, and today's world, in which even those bodies charged explicitly with looking after the public interest end up in conflict with it. Or, as Mr Graeber concludes:

Most
Americans no longer feel that the institutions of government are, or
even could be, on their side. Because increasingly, in a very basic
sense, they're not.

06 March 2015

Concluding a piece about the growing dangers arising from nuclear proliferation the Economist says:

But for now the best that can be achieved is to search for ways to
restore effective deterrence, bear down on proliferation and get back to
the dogged grind of arms-control negotiations between the main nuclear
powers. The unkicked addiction, 'the Economist', dated 7 March

My question is twofold: who will do the searching and what incentives will they have to get it right? On present trends we can be pretty sure that responsibility for a nuclear exchange-free world will fall to nationalist politicians, corrupt bureaucrats (national or United Nations), well-meaning bureaucrats (same) or well-meaning, dedicated but underfunded people working for non-governmental organizations. The same people, in short, who have collectively brought us, let's be factual, to the brink of nuclear catastrophe.

It's not just the identity of these people that's the problem; it's also that they have little financial incentive to maintain nuclear peace. They are not paid according to performance. So they have little incentive to explore innovative ways of forestalling proliferation or use of nuclear weapons that might do a better job than the existing, tried tested and failed methods.

I can't suggest 'ways to restore effective deterrence' but I can suggest a way that would encourage others to find such ways, and reward those that are successful. We could issue bonds that become redeemable only after a sustained period - thirty years, say - of nuclear peace. It would be up to the resulting coalition of motivated bondholders to explore the best ways of taking all the steps necessary to bring about that goal. These would probably include measures that existing bodies, because of their status or their short time horizons, do undertake nowadays, including, for example, building trust between schoolchildren of all nationalities and religions. Approaches encouraged by such Conflict Reduction Bonds would be diverse, because one single approach will not work, and adaptive, because the most effective measures are likely to change with time. For a longer essay click here, and for the application of the Social Policy Bond principle to the Middle East click here.

26 February 2015

The [UK] government’s health policy reached new levels of absurdity last October, when it was announced that GPs would be paid £55 for every diagnosis of dementia they could enter in a patient’s notes. Cash for Diagnoses, Gavin Francis, 'London Review of Books' dated 5 March

I'm convinced policymakers have no idea how to specify societal goals. They don't seem to realize that goals that are narrow and short term can, and most likely will, conflict with those that are broad and long term. So it is with the nonsense described by Mr Francis. From where might the initiative for such incentive payments arise? Mr Francis points the finger:

This debacle is just the latest example of a medical culture, promoted by successive governments over the last twenty years, that rewards over-diagnosis and the prescription of drugs over personalised, professional care.

Our governments seem incapable of looking after society's interests. They seem to think that doing what they can to meet the demands of the most powerful lobby groups, including government agencies, is equivalent to looking after the interests of all their citizens. It isn't.

A Social Policy Bond regime would be quite different. It would target and reward meaningful improvements in the health of the entire population. It would take a long-term view, and could do so because it would focus exclusively on its target outcomes. It would reward the people who achieve our health goals whoever they are and however they do so. For more on how the Social Policy Bond principle could be applied to health click here.

23 February 2015

If men were actuated by self-interest, which they are not — except in
the case of a few saints — the whole human race would cooperate. There
would be no more wars, no more armies, no more navies, no more atom
bomb. Bertrand Russell, What Desires Are Politically Important?, 1950

Our current policymaking system gives undue priority to emotion, whim, and concerns that make for effective television footage. So our politicians give arguably too little attention to huge, important challenges that move too slowly for television, such as the piling up of armaments, climate change, the diversion of resources from the poor to the rich, and threats to the family and social cohesion. Our short-term, reactive self-interest is largely ideological, concerned more with shoring up our world view and creating bonding opportunities with people who think the same way than with solving the world's social and environmental problems. It's determined largely by a dangerous combination of emotion coupled with abstract intellectual thought. It concerns itself with the immediate, which means a focus on what can be done now rather than outcomes. And what can be done now to solve most social problems is inevitably the source of endless heated and destructive debate because our problems are so complex.

We should build into our policymaking system the fact that there is far more consensus over the sort of outcomes that we as a society want to see than there is over the supposed means of achieving them. The societal self-interest that Russell implicitly identifies - the sort that is beneficial to all of humanity - could then take over from the narrow, fear-based self-interest that animates so many of the world's political (and military) decisions.

Social Policy Bonds would encourage us to make the distinction. A bond regime would make decisions about society's long-term goals on the basis not of what government can do now or where it should allocate its funds, but on what needs to be done. This would take the ideology and emotion of how things shall be done and who shall achieve them. Social Policy Bonds could then target effectively those universal social goals that are currently either not being targeted, or not being achieved, or from which we actually moving away. A world of peace, for instance, or a world that seeks to prevent or mitigate catastrophes of any sort. For more on the Social Policy Bond principle and its applications see SocialGoals.com

15 February 2015

According to the [United States] Government Accountability Office, between
2007 and 2011 Uncle Sam paid some $3m in subsidies to 2,300 farms where
no crop of any sort was grown. Between 2008 and 2012, $10.6m was paid to
farmers who had been dead for over a year. ... [W]ith crop prices now
falling, taxpayers are braced to be fleeced again. Milking taxpayers, 'the Economist', 14 February

When government makes so many policy interventions, some of them are going to be bad. A working, viable, democratic, accountable and transparent policymaking system would, we'd hope and expect, weed out bad policies or, with judicious regulation and further intervention, convert them into better policies. But our current policymaking system is incapable of doing that. Instead, bad policies become worse policies, because rather than have mechanisms for getting rid of them they create interest groups who resist change and, as recipients of taxpayer funds, can afford expensive lobbyists to make these policies permanent features of the political landscape.

So it is with agricultural policy, not only in the US, but in almost all of the developed countries. Forty years ago, or instance, the stupidity of the European Community's Common Agricultural Policy was well established and widely discussed. But very little has changed. These policies hurt consumers in the developed countries by raising food prices. They reward intensive farming with devastating effects on the environment and animal welfare. They penalise third-world countries by putting up barriers to their agricultural exports. They cost billions of dollars and their only beneficiaries, apart from the bureaucrats who administer them, are agribusiness corporates and wealthy landowners. From the same article:

American farm subsidies are egregiously expensive,
harvesting $20 billion a year from taxpayers’ pockets. Most of the money
goes to big, rich farmers producing staple commodities such as corn and
soyabeans in states such as Iowa.

I wrote about all this 15 years ago. Worth repeating and emphasising is that our policymaking system does not correct its errors. Instead, appallingly wasteful policies persist because they enrich people who lobby against their removal. We have a system that cannot correct errors but rather entrenches them. The current system, in brief, is dysfunctional.

A better alternative would be to focus on outcomes, and reward people for achieving them. People understand outcomes, and policies under an outcome-oriented system would not be subject to the smoke-and-mirrors manipulation that saw measures taken to 'protect the family farm' be transmuted into subsidies for agribusiness and billionaire landowners - alive and dead. Agriculture, of course, is not the only sector that government policy has corrupted in ways that hurt ordinary people, though it is one of those with the longest history of government intervention. Our failure to correct our policy mistakes in agriculture speaks volumes about how unfit is our current policymaking system.

12 February 2015

It's a puzzle to me how we have created regimes that allow
financial incentives to operate creatively in interesting but ultimately not
very important aspects of our lives - advertising dog food, for example - while
ways of dealing with the most serious determinants of mankind's well-being
rarely reward efficiency. So employees of companies selling dog food have sales
and revenue targets to meet, stringent deadlines, and they are offered
meaningful incentives backed up by robust reporting and analysis systems to
monitor progress and so achieve maximal dog food market penetration. In
contrast, responsibility for what you might think should be major priorities
for homo sapiens is given over to the dead hand of government or brave, well-meaning,
hard working but under-resourced non-governmental organizations.

What are these priorities are? Most of us would probably
give a high rating to things like avoiding the deaths of many millions of
people in a nuclear exchange. Or the ending of any violent political conflict
of the sort that, amazingly, in the 21st century, still kills, maims or makes
homeless countless thousands of us around the globe. Or minimising the deaths
caused by natural disasters, or pandemics.

Climate change too: it's no different from other potential
catastrophes in that we don't know when or how it will strike. The most
fortunate amongst us can insure against some of the financial costs of some
adverse climatic events. But even there, markets cannot fully redress the balance.
The uninsured, whether uninsurable or not, cannot be compensated at all.
Markets are even less capable of addressing the more global calamities of
nuclear war, or large-scale violence.

Some years ago I came up with the Social Policy Bond idea,
which aims to channel market incentives into the achievement of social goals. Much
of this idea has been taken up by governments worldwide, in the form of Social
Impact Bonds. But SIBs leave out one crucial aspect of the Social Policy Bond
principle: tradeability. When the bonds are tradeable on a secondary market, we
can greatly enlarge their scope, because we do not have to specify which
organizations shall achieve our goals, and because we can target goals that
might be too remote to interest existing organizations.

Take something that has recently made the news: nuclear
catastrophe. As the members of the Bulletin of Atomic Scientists shift the
hands of their doomsday clock to three minutes to midnight, where are the
incentives that will mobilise large numbers of us actually to do something to
avoid the doom represented by midnight? There aren't any - we're all doing
better by devoting our ingenuity to selling dog food.

The answer could be Social Policy Bonds. Targeting nuclear
catastrophe they would be backed by governments, NGOs, philanthropists and anybody
with a strong interest in human well-being. Floated on the open market they
would become redeemable for, say, $1m each only after a thirty-year period
during which no nuclear explosion takes place. Floated on the open market, they
might fetch just $10000 each, if the market thinks the probability of thirty
years’ nuclear peace is low. But these bonds would be tradeable: their value
would rise and fall according to how likely people think the peace target will be
reached.

Initial investors would buy the bonds and do whatever they
can to increase that probability. Even helping existing ways of monitoring
nuclear material might see the value of their bonds double. Others, with
expertise in different areas, would buy their bonds and do what they can to
raise the value of the bonds still further. At every stage, the bonds would be
in the hands of those most able to bring about nuclear peace. The bondholders’
goal is exactly congruent with society’s: they
make money only by achieving society’s goal. At every stage of every
process required to achieve that goal, incentives will motivate people to be as
efficient as possible.

Rather than encourage endless speculation about what
projects will make the world more peaceful the bonds would, in effect, contract
out the achievement of world peace to the market. They would encourage a wide
range of adaptive projects, whose
sole criterion for funding would be that they would raise the probability of
world peace being achieved. In this way, the governments and others who back
the bonds would do what they are best at: articulating society’s goals and
raising the revenue for their achievement. At the same time, the market would
be doing what it is best at: allocating resources as efficiently as possible.

If nuclear peace sounds too lofty a goal, then we could
start by aiming for something like peace in the Middle East. The same principle
would work for natural disasters or climate change. In every case, we'd be
rewarding the successful achievement of a sustained, desirable outcome, without
- as now - distracting ourselves by self-indulgent irrelevancies such as who
shall achieve it and how they shall do so. It is a shame to me that few people
seem to think along these lines.

09 January 2015

George Monbiot writes about city planning in England, and the lack of playing space for children: "In the places built 10 or 20 years ago, there’s plenty of shared space, but almost all of it is allocated to cars." It's sad how little input ordinary people have into the layout of our towns and cities, and it's tragic that subordinating our entire way of living to motoring (as distinct from motorists) has had such negative consequences for our physical and mental health. People from the new world travel for thousands of miles to experience, for a week or two, vibrant, safe cities that invariably were developed before motoring became important. There's no reason people shouldn't live in the sort of suburbs or satellite towns against which Mr Monbiot inveighsif that is what they want to do, but there are good reasons why such lifestyles shouldn't be heavily subsidised; indeed, so heavily subsidised that any alternative has become forbiddingly expensive or dangerous for the middle classes. What are these subsidies? As well as subsidised to oil extraction and consumption, there is, essentially, free parking. And the costs of accidents, injuries and the damage done to mental health by roading are, of course, borne by the entire population.

Once a particular lifestyle has received subsidies for many years it's very difficult (though not impossible) to withdraw them. As well, cause and effect are difficult to identify and far more difficult to translate into meaningful political action. That is where Social Policy Bonds might offer a way forward. Under a bond regime we could target things that are not amenable to direct government action: things like the loneliness of the elderly, or the broader physical and mental health of an entire population. We cannot know in advance what are the best ways of achieving such targets. But a motivated coalition of investors holding bonds targeting these goals is far more likely to achieve them than a ruling political party beholden to its friends in big business and government. If holders of bonds targeting such goals decided that the best way of enabling people to live fulfilling, healthy lives is to make everyone dependent on cars, then that is what they will do. But they would only do so if that is what the evidence told them. For myself, I suspect that there is no such evidence, and it's a catastrophe that governments the world over are acting as though there were.

21 December 2014

There are sound reasons for being disdainful of quantitative targets in policymaking - something that forms the very basis of Social Policy Bonds. But, perhaps unfortunately, in our highly aggregated, complex, societies, the alternative to targeting broad, explicit and, most important, meaningful goals is to target narrow, opaque goals that are devoid of meaning in that they do nothing to improve social well-being.

I've blogged before about the proliferation and futility of such Mickey Mouse micro- (here and here for instance) and macro-targets (here and here). So it's disappointing, though not surprising, that the academic world is following the trend. See here, for instance, to read about cash for citations. Or here, for how to find "outfits that offer to arrange, for a fee, authorship of papers to be
published in peer-reviewed outlets. They seem to cater to researchers
looking for a quick and dirty way of getting a publication in a
prestigious international scientific journal."

If we are going to combine financial incentives with numerical targets then we need to make absolutely certain that those targets are, or are inextricably linked to, robust indicators of social well-being. The alternative? Well, it is what we have now: indicators defined not by society, but by vested interests within organizations who suspect that broad, meaningful indicators would threaten their way of doing things, their status, or indeed their existence.

09 December 2014

[N]atural selection favors the forces of psychological denial. The individual benefits as an individual from his ability to deny the truth even though society as a whole, of which he is a part, suffers. The Tragedy of the Commons,
'Science', 13, December 1968

Governments supposedly serve society's interests by regulating and taxing individual and corporate activities that are essentially self-serving. It's a process that evolved over time and, while flawed, has proven evolutionary advantages over central planning. And, perhaps because central planning as practised by the Soviet Union and others has been totally discredited, our governments seem to have relinquished their role of thinking strategically on behalf of their citizens. They are subject to the same biases and incentives to deny the truth as individuals. Whether it's environmental disaster, or nuclear catastrophe, or less spectacular but just as grievous impacts of man's inhumanity to man, or financial crises or whatever, our governments take the easy route of waiting for things to happen and then reacting. It's inefficient at best, and could be calamitous at worst. Society is so interlinked and complex that major disasters of some sort are inevitable - and extremely difficult to foresee. But government should not then deny the real possibility that these events will occur: it could, and should, think strategically and on behalf of society. By issuing Social Policy Bonds it could reduce the likelihood of disasters, say, without trying to involve itself in how and when they are likely to occur. For example: I'm reading Eric Schlosser's Command and Control, which tells alarming tales of accidents and blunders that came close to bringing about catastrophe. It's quite disturbing how little incentive the people in control, at all levels, had to think about the potential impacts on society rather than on themselves or the organization of which they were part. Social Policy Bonds that would be redeemed only after, say, 30 years of a complete absence of nuclear explosions, accidental or not, would be one way of giving people incentives to avoid such a disaster. A bond regime targeting such unforeseeable but plausible scenarios would make them less likely to occur and would do so as efficiently as possible. And by issuing Disaster Prevention Bonds government would be doing what it's supposed to do: looking out for all its citizens' interests by directing people's ingenuity into socially useful ends.

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Social Policy Bonds

See the Social Policy Bonds website for overviews and links to articles, papers, news and more about Social Policy Bonds. Click on the image below to download a 2400-word article, published by the Institute of Economic Affairs, London.

Social Policy Bonds in 2400 words

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Social Policy Bonds in the media

3 May 2012: An audio talk by Nobel Prize winner Professor Robert Shiller at the London School of Economics, in which Social Policy Bonds are briefly mentioned, is available here.